Housing market may slow Australian economy's growth

The Australian economy has boomed in recent years to the point where the US Federal Reserve started asking the Reserve Bank of Australia (RBA) for tips on maintaining a stable level of growth over record periods, but there are signs that such luck ma

The Australian economy has boomed in recent years to the point where the US Federal Reserve started asking the Reserve Bank of Australia (RBA) for tips on maintaining a stable level of growth over record periods, but there are signs that such luck may well be running out.

Thanks to the struggling housing market, the value of real estate in most major cities is dropping fairly heavily, and some analysts believe that this has the potential to lead to a credit crunch.

The housing market is one of the strongest indicators of how well an economy is doing, and there are clear signs that not only is the average Australian’s disposable income dropping, but houses going on the market are also attracting less interest.

Many savings accounts are already dwindling due to day-to-day living, so saving for a larger house tends to be out of the question for plenty of individuals. Those listing their houses are finding it hard to attract buyers with higher prices and often have to go below their houses' purchase price.

A stagnant market with less capital flowing to the major lenders combined with fears that not all people can repay current debts on interest-only loans makes the market vulnerable to volatility.

Presently, any real damage is still far off, and the Australian economy is simply not enjoying the same level of growth that it did previously. Many analysts predict that GDP growth will be above 3%, which is enough to guarantee employment for millions while enabling businesses to take on more staff.

The next set of accounts is due for release this week, and forecasts indicate that the Australian economy is on track for a third-quarter boost of 0.6%. This will take growth for the year to 3.3%, just a bit below June's 3.4%.

Commonwealth Bank of Australia Chief Economist Michael Blythe said that this is good news, calling it a "decent outcome." He noted that recent figures are "still well above what most people would say is above potential for the economy."

However, Westpac Senior Economist Andrew Hanlan believes that there is cause to worry about the economy slowing in growth, citing the "cooling of the housing sector, in both prices and activity" as a sign that "momentum has eased back in the second half of 2018, heading into 2019." He said that there will be potential downsides should the slide not stop before too long.

Figures from November by housing data specialists CoreLogic suggest that the Australian housing market is on its worst run since the global financial crisis back in 2008, with real estate prices across the country dropping a noticeable 0.7% on the whole. After peaking back in October 2017, prices have tumbled by an average of 4.2%.

Hanlan suggested that this price drop is coming against the background of a government looking to spend where it can to grow the economy. He said that solid export prices thanks to elevated commodity demands mean that the slump is entirely possible to withstand. Hanlan also noted that current circumstances are different from the 2008 crash, not least because the economy is less exposed if prices do drop further. However, he did describe the current trend as a "headwind for the consumer."

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